BP profits double but investors concerned over cost of oil spill
LONDON (Reuters) - BP Plc's announcement of a more than doubling of first-quarter net profits yesterday failed to ease investors' concerns about the impact of a worsening oil spill in the Gulf of Mexico, knocking the company's shares.
BP said replacement cost net profit, which strips out unrealised gains related to rises in the value of inventories, was $5.60 billion in the quarter, up from $2.39 billion in the same period of 2009, thanks to higher oil and gas prices.
The underlying results were well ahead of forecasts but chief executive Tony Hayward acknowledged the focus would not be on the firm's continued financial recovery.
"They're a good set of numbers, clearly overshadowed by events," he said on a conference call with reporters.
BP's shares fell 1.8 percent to 617.8 pence, underperforming the STOXX Europe 600 Oil and Gas index which was 1.4 percent down at 1307 GMT.
The Macondo well in the Gulf of Mexico is leaking 1,000 barrels per day of crude after the rig that was drilling it exploded and sank, with the loss of 11 workers, who are now presumed dead.
BP hopes to activate a shut-off valve on the seabed in the coming days. The company is also constructing a steel canopy that could collect oil from the well head and take it to the surface, which would take four weeks to deploy.
If neither of these plans work, BP will have to stem the flow with a relief well it plans to drill in the coming days. The London-based company said it may also drill a second relief well to ensure the flow is stemmed.
Hayward said the relief well, which will cost $100 million and take two to three months to drill, would be the highest cost the company will face.
However, the cost of keeping dozens of boats and several planes on the clean-up operation for months, plus potential shoreline clean-up, possible fines, lawsuits and reputational damage, could send the final cost far higher.
"The situation in the Gulf of Mexico is now looking more pessimistic and it looks increasingly likely that it will take months rather than days to remedy. Ultimately, the costs associated with this accident will be proportional to the time taken," said Dougie Youngson, oil analyst at Arbuthnot. The worst oil spill in US history was caused when the Exxon Valdez ran aground in Alaska in 1989 and leaked 258,000 barrels of crude.
Exxon said it paid $3.5 billion in clean-up costs and also faced punitive damages of hundreds of millions of dollars.
BP said that excluding one-off items, which amounted to a net charge of $49 million, its replacement cost profit was $5.65 billion, ahead of an average forecast of $4.78 billion from a Reuters poll of nine analysts.
The rise in profits was due to a recovery of crude and gas prices from the recession-hit levels of 2009. Brent crude rose 72 percent to average over $76 a barrel over the first three months of the year.
BP managed to outperform expectations partly because it also managed to achieve much higher prices for its gas, despite a drop in European benchmark gas prices compared to the first three months of 2009.
One dealer said the better-than-expected results augured well for other oil majors such as Royal Dutch Shell Plc, which reports its results today.
Higher throughput at its refining unit also allowed the company to outperform expectations, although a halving of margins compared to the first quarter of 2009 meant the overall result was sharply lower.